The Freeman editor Sheldon Richman, speaking at George Mason University, raised the question of just what mainstream libertarians mean when they call a country “capitalist.” What qualifies a country as “capitalist”?

A lot of countries with relatively low indices of economic freedom (including those ranked as “mostly unfree”) are conventionally regarded as “capitalist,” and referred to as such in neoliberal agitprop comparing them favorably to non-capitalist countries like Cuba. And the talking heads at CNBC and scribblers in the business press commonly refer to “our capitalist system,” even though it’s doesn’t even remotely approximate a free market.

So in common usage, among establishment libertarians and what passes for mainstream “free market” wonks, any country that hasn’t adopted Marxian socialism as its official ideology is “capitalist.”

Based on these observations, Richman concludes that “capitalism” in practice “designates a system in which the means of production are de jure privately owned.”

Interestingly, Murray Rothbard relates an anecdote in which Ludwig von Mises made that distinction, or something very like it, explicit. He asked Mises: Given that there’s such a range of possible degrees of statism, from total statism to a totally free market, and given that no country approaches either absolute, what do you regard as the defining characteristic that divides essentially capitalist from essentially non-capitalist societies? Mises’ response: the existence of a stock market. A society with a market for capital goods is essentially capitalist.

As I have pointed out in the past–a point Richman refers to in his address–it is rather odd that “capitalism” was adopted as the conventional term for a society based on private property and free exchange. There’s no obvious reason, in seeking a name for an economy in which all factors of production are ostensibly equal and enter into free contract as equals, that capital should be singled in particular out for special emphasis. The choice of “capitalism” suggests some special ideological agenda, as if the system were run of, by and for capital as distinguished from other factors of production.

The unstated assumption embodied in calling a country “economically unfree” and yet capitalist, is this: an economically unfree country only ceases to be capitalist when the lack of economic freedom interferes with the ability of rich people to become richer from returns on land and capital. So long as the lack of economic freedom primarily limits the freedom of the poor to escape poverty, but the rich are able to enrich themselves on the pattern of UFC in Guatemala or Jack Abramoff’s clients in the Marianas Islands, it’s got the Good Housekeeping capitalist seal of approval.

Mises answer to Rothbard above–aside from confusing a “market for capital goods” with a market for equity in firms–implies that, no matter how economically unfree, a country in which most business enterprise is absentee-owned by the owners of concentrated wealth, and most labor is hired for wages by such absentee owners, passes muster as “capitalist.” Presumably a country in which wealth was so widely distributed, and self-employment and cooperative ownership were such primary forms of social organization that stock trading was marginal in importance, would fall on the “socialist” side of Mises line–even if there were no regulatory constraints whatsoever on market exchange and the free movement of prices.

This is a very telling set of priorities: “capitalism,” as opposed to “socialism,” is not defined by the degree of economic freedom as such; it’s defined by a particular institutional structure which is disproportionately to the benefit of a particular class of market actors.

As evidence that some forms of unfreedom matter more than others, consider the proclivity of some right-wingers for saying “Pinochet’s political authoritarianism was lamentable, but at least he made Chile more free economically.” Never mind “minor” issues like whether reversing a land reform and returning land from the people who worked it to a landed oligarchy was a step toward “economic freedom.” Just consider Pinochet’s authortarian suppression of the labor movement: had it been the owners of capital, and not the sellers of labor-power, who had been tortured and disappeared, or found in ditches with their faces hacked off, I doubt they would have said the same thing. It’s an odd distinction to treat repression of the owners of one factor of production as economic, but of the owners of another factor as only “political.”

This assumption underlies most mainstream “free market” commentary in the business press and business news channels: even when they explictly refer to “our free market system” in so many words, they really mean a system in which most business enterprise is nominally “private.” No matter how statist a system of regulations is in effect, so long as they’re exercised primarily through “private” actors, and most money passes through the hands of such “private” actors rather than the U.S. Treasury, it’s a “free market” system. Hence, the kind of “free market” agenda you see at places like Heritage and the Adam Smith Institute for “privatizing” government functions by contracting them out to “private businesses,” even when those businesses are guaranteed a profit at taxpayer expense.

And by the way, those who object to all this as a form of semantic gamesmanship should remember that Mises and Rand were responsible, from the 1920s on, for the deliberate rehabilitation of “capitalism” as a term of pro-market apologetics. Before Mises’ time, “capitalism” was used by mainstream political economists to describe the actual system of political economy they lived under–i.e., historic capitalism.

“Capitalism,” simply put, is the most honest term for the unfree market we live under. It’s a system of, by and for the owners of capital; so long as it retains that primary characteristic, it’s “capitalist,” no matter how unfree the market.

"Mises answer to Rothbard above–aside from confusing a “market for capital goods” with a market for equity in firms–implies that, no matter how economically unfree, a country in which most business enterprise is absentee-owned by the owners of concentrated wealth, and most labor is hired for wages by such absentee owners, passes muster as “capitalist.” Presumably a country in which wealth was so widely distributed, and self-employment and cooperative ownership were such primary forms of social organization that stock trading was marginal in importance, would fall on the “socialist” side of Mises line–even if there were no regulatory constraints whatsoever on market exchange and the free movement of prices."

Interesting point you make, noting that Mises equates capital goods with equity in corporations. I've wondered that myself. Still, the pro-"capitalist" (in the libertarian sense), is of course in favor of (real, not nominal) private ownership of all property, including capital, where firm-equity is just a subset of capital.

I don't agree with your apparent view that absentee-owned property is not legitimate. I believe this view is unlibertarian, as I have noted in A Critique of Mutualist Occupancy.

I find astonishing your apparent/implicit claim that in a free society, you could have a prosperous, advanced economy based primarily on "coops" and self-ownership. But I'd be glad to have a free society so we could try it out.

Stephan, I actually don't consider absentee ownership of business enterprises to be illegitimate. The mutualist view of occupancy, at least as put forth by people like Greene and Tucker, applies only to land. As to the precise boundaries between radical Lockeanism and Tucker's usufructory views, I find them blurrier by the day.

I certainly have some doubts as to whether corporate entity status would exist in a stateless society, but I don't consider wage labor as such to be illegitimate. I strongly suspect there would be a lot less of it, and consider that a good thing for thick libertarian reasons. And where it exists, the increased bargaining power of labor would probably cause its character to be altered in most cases.

"…don't consider wage labor as such to be illegitimate" Perhaps you have figured out how de facto responsible human action can be "transferred" from one person to another!? There are legions of hired criminals languishing in the prisons who voluntarily wanted to transfer de facto responsibility but the Law said it is impossible and hence they were still held legally responsible for the fruits of their labor.
Otherwise there are many excellent points here. The key institution in the slavery system was the legal owning of other people, and the key institution in the current system, which was mislabeled "capitalism" by Marx, is the renting of other people. A better name would be the "employment system" or the "wage labor system." An economic democracy where the voluntary relation of renting or owning others is abolished would still have "private ownership" of capital goods and would finally have a legitimate private property system where people got the fruits of their labor. The story of how the apologists for the people rental system and the Marxists are in an unholy alliance to misframe the questions about so-called "capitalism" is the subject of a recent paper: "Marxism as a Capitalist Tool" when can be downloaded at: http://www.ellerman.org/Davids-Stuff/Econ&Pol….
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I was hoping I'd find this again. I want to comment on this. I and others often say things about "true communism". True communism would be a good thing. I can hear the groans. When you mention "true communism" there is no doubt the freemarket libertarian groans, and thinks, "oh no! Another communist apologist." It is true, true communism would be a a good thing. But when you get over your groaning at my mention of "true communism" due to your dualistic thinking, realize that, it is also true that true capitalism is just as distant as true communism. Stalin called his system "state capitalism" State capitalism and state socialism/communism? are one in the same. True communism and true capitalism could do mutually beneficial. The thing that thwarts communism and capitalism is the idea that, if it (whichever) is a good thing, it is a good thing, and must be imposed universally. The attitude always cause inevitable failure.

When you say capital, do you include each individual's time, talent, knowledge, effort, and the legitimately acquired material property traded for fruits of that labor? I believe all of these things are capital, and whether we like it or not, when individuals/entities voluntarily trade these things in the absence of aggression, there is capitalism. I view capitalism as the naturally resulting catallactic system which comes out of human interaction in the absence of a violence enforced system such as communism, corporatism, socialism, fascism, mercantilism……… Property rights are the physical manifestation of all other rights and define where one's rights begin and end relative to everyone else's. Where self ownership, including all of the aforementioned capital are recognized and freely traded, is that capitalism, or something else? What term should be applied which concisely encompasses all of the above?

Whether you call it anarcho-capitalism or free market anti-capitalism really *is* a semantic matter. In Mises and Rand language, the system of state control with de jure private ownership is called “fascism” or “neomercantilism.” What we currently have in the US is a mixed economy, mostly fascist but with some important state socialist nationalization.

You prefer Marxian jargon, which is probably good showmanship, by calling fascism “capitalism.” No problem. I know what you mean. You deftly skewer mainstream use of the term.

I don’t think that it’s “odd that ‘capitalism’ was adopted as the conventional term for a society based on private property and free exchange.” Human productivity had progressed to the stage that most production utilized tools and machines – capital goods – in addition to traditional land and labor. This use of capital caused a major surge in wealth and standard of living, not to mention population. Why not name the economic system after the revolutionary factor?